Best Buy Plans to KO Competition This Holiday
By George Anderson
Best Buy believes it has a one-two punch combination that will put its competitors down for the count this holiday season.
First, it will take a swing with low prices on the season’s most coveted consumer electronics. If that doesn’t do the job, it will counter with a level of service that others playing the price game simple can’t match.
Best Buy’s general merchandise manager Ron Boire is looking to the “customer-centricity” initiative launched by the chain to keep customers streaming through the doors.
“Our value is in the differentiated experience,” said Mr. Boire.
He also believes the consumer electronics chain will benefit from consumer demand for hot products such as Microsoft’s Xbox 360, MP3 players and digital televisions.
Flat panel television sales at the chain have been growing at a triple digit rate this fall, according to Mr. Boire.
Moderator’s Comment: Is Best Buy’s “differentiated experience,” as Ron Boire calls it, the key to the retailer’s success this holiday season and beyond?
Among the things Best Buy has done to differentiate itself, which is the most important in attracting and keeping customers coming back to the chain for their consumer electronics
needs? –
George Anderson – Moderator
For over a year, Best Buy’s prices have been considerably higher (with the exception of appliances) and if they actually take the prices down, the customer is going to “give up” the quality (no one ever sells all three) or the advantage will come from the reward program.
Best Buy has done a great job of capturing their market with the customer experience and it has created loyal customers who continue to believe that Best Buy has the best prices. They have even found a way for people to pay for a reward program that is giving Best Buy the information they need to enhance that experience and segment their stores based on the “preferred customers’” demographic information.
However, when it comes to sharpening the pencil, I would highly doubt that their prices will be the most competitive come November 25th.
Pardon my laughter. We’ve heard this all before, but BBY or CC with their flea-marketing mentalities can’t figure out how to provide service (I think they don’t really know what it is) with real low price credibility. To do this, UNBUNDLE. I have seen sensational plans for an electronics store that solves the problem with a sort of expanded Costco type concept, except that the membership fee isn’t justified by making the low price available; it’s for a service club that provides member only info demonstration, education, & irresistible return/warranty policies bundled for a small monthly fee. This allows clever cross promotions that give the appearance of a discount on brands not normally discounted. Non-members can choose the same low price as members, but get only a sealed box and manufacturer provided service and no touchy-feely; just a panoramic view of the goodies thru the club’s glass wall. Costco members forget about the membership fee they pay when they price compare, yet those fees equal store profit. I predict that only by unbundling price and service will any retailer get a shot at the full spectrum of electronics shoppers. The culture at BBY or CC is too fossilized to do this. In the long run, it is they who will be KO’d.
Best Buy’s success or failure with this is all going to come down to execution. Prices are low everywhere – whether you go to Circuit City, CompUSA or anywhere else. That by itself is not a believable differentiator. The challenge Best Buy will have in delivering the differentiated experience will be in fixing some of the problems that traditionally plague them – making sure the have the right products in stock and that their employees can have an intelligent conversation about them with consumers.
Most people, I courageously presume, who buy the products Best Buy sells come into their stores, or their competitor’s, with some advanced knowledge of what’s NEW, what they want to buy, and why. Thus PRICE rings the loudest bell. On the other hand, poor customer service rings only a clunker. If Best Buy can deliver a big ring-a-dingy on both Price and good Customer Service, they will have a good holiday selling season. The proof will be in the real holiday pudding.
It is yet to be seen how well Best Buy can deliver on their goal of keeping people “streaming through the doors.” I’ve seen a lot of people streaming in during holiday sale time and have no reason to suspect that this year will be different. However, I have also seen check-out lines to the back of the store. So while consumers stream in, they have not been able to stream out in the past. Since waiting in line to check out is one of the things consumers really dislike about a retail experience, the question is how will Best Buy handle the check out process to make it “stream” and how will they be able to staff the rest of the store so there are employees to answer questions and provide the rest of the service experience.
We are noted fans of Best Buy (and have previously outed ourselves as having a client relationship) so of course we concur that BBY has a great one-two punch. The key to the “differentiated experience” is that BBY is making things more RELEVANT to the target consumer.
But one thing we have often questioned is whether or not they were trying to distance themselves too far from the basic positioning they own with the name –“Best Buy”– and the accumulated power of that with consumers. Granted, the “best” buy involves much more than price, but this is a retailer whose basic concept was born out of parking lot distress sales, after all. It is great to see them touting the “one-two punch” with number one still being “best price.”
Now, as to whether Wal-Mart will let that stand….
Clearly, Best Buy is getting it right with their new floorplan and focus towards specific customer groups. Getting it right with the service is another story and the best thing they can do is not promote it. It’s better to delight the customer with great customer service when they’re not expecting it than say you’re going to deliver great customer service and not be able to follow-through. Biggest downside to Best Buy is how their stores are like “Heartbreak Hotel” – you can check-in but you can’t check out. The level of security they take towards customers makes me feel like they assume every customer and employee is out to rip them off on every visit. To that end, I’ve found it easier to go to Best Buy to find what I want and then order it from their website.
The experience a retailer delivers year round has a huge impact on where the customer will shop this holiday season. I have a Circuit City where I live that gives abominable service. I have yet to ever walk in and not have making a purchase a painful experience. It would take a lot of “motivation” to get me to shop there in the busy holiday season. So at least for me, if Best Buy has the lowest prices and what around me at least a better experience, they will definitely get my CE holiday dollars this year.
One thing that all retailers have to remember is that the shopping experience, especially the check-out process, is so critical during the holidays. If Best Buy undercuts everyone but is not in a position to quickly and efficiently handle the surge of business it could have a more long-term negative impact on their business. I don’t care how low the prices are if the shopping experience is painful and frustrating. I might tough it out that time but would think twice about returning again.
It is going to be an ugly slugfest this holiday in consumer electronics. No way is Wal-Mart going to be undersold. Circuit City must have a strong holiday or the current management team could be replaced. COMPUSA is determined to be a price leader. The margins are going to be painfully thin so each of these retailers will look to make it up in volume. The real winner this holiday will be the consumer. Let the games begin!
Anyone who can successfully deliver both low prices and good service will have, so to speak, built the better mousetrap. As has been pointed out here, it depends on execution.
Best Buy has talked the customer service angle before and today is putting its money where its mouth is by rolling out their “customer centricity” model and the Geek Squad. Both should play very well with their customers this season and help Best Buy differentiate itself on more than just price.
As has been pointed out, pricing in the electronics category has always been cutthroat and will remain so. Prices are plummeting on a wide range of the best-selling electronics this holiday, with notebook PCs and flat panel and digital TVs sure to lead the way. All the electronic stores will be on top of this phenomenon, as they are today, so differentiating on price will be more a matter of knowing the right item to promote at the right price by understanding the dynamics of the market. In that scenario, Wal-Mart will, as always, come to the battle unarmed since their understanding of the supply chain dynamics in electronics, and their ability to respond to prices that change every week is nothing short of abysmal. They got beat last Black Friday and some initial postings of their Black Friday products this year have already begun to circulate. If those are true they will be beaten to the punch once again by Best Buy and others.
The real question for the holiday season in electronics is whether falling prices can stimulate enough unit demand to generate positive returns. The ones who do that will be the ones who are most nimble and quick at reacting to market conditions. None of this is easy in an atmosphere of collapsing prices, but Best Buy and the other electronics chains have years of experience with this while Wal-Mart has almost none.
Best Buy and its competition always claim that their prices are the lowest, so this claim has no special credibility. As for customer service improvement including demographic differentiation on a national rollout, the jury is still out. Sometimes an executive earns credibility by underpromising and overdelivering.
My previous experience with Best Buy kept me away from them for a considerable period of time. I returned based on recommendations from friends’ and associates’ comments on how they had changed. I returned, I tried it, I was impressed by several visits and even an exceptional experience of a true ‘no questions asked return.’ They’ll get another try this holiday season and we’ll see.
In a market where the point of differentiation is providing the least painful experience, there isn’t much of a road to improvement. There is no clear leader in this slugfest and I expect that to continue until consumers actually demand better through their spending.
I do give them high marks on service of recent. Continuous execution is difficult. Let’s see how well they can manage to keep up the improvement. If I sound skeptical…well…